Privileged people can give and take bad financial advice

Get Rich Slowly has been going downhill.  I had been excited when they rehired Robert Brokamp, but the vast bulk of his posts since starting have been pretty terrible.

The most recent that I read was discussing what to do when you absolutely must buy a house you cannot afford for which you haven’t saved a downpayment because you’ve gotten married and your wife is about to have a baby.

I will let you digest that.

Assumption:  You must buy a house when you are about to have a child.  Because… I’m not really sure why.  Perhaps Muffy and Chaz would shun you if you’re still living your penthouse.

Ok, so then he goes on to give his advice.

“#1 Get help from family. My dad pitched in $10,000 as an advance on my inheritance.”

Because… your dad has an extra 10K.  That he can just give you.  And isn’t going to need for say, unplanned end of life care.

Right there, that first line indicates that Brokamp is coming from wealth.  If he screws up, his parents can, and WILL, bail him out.  He can afford to do risky things like buy a house with no real money down.  Most people can’t!  And of those who can, many of them would not want to put their parents’ money on the line like that.  DH and I make a lot of decisions because we don’t want to have to ask family to bail us out, even though they probably could.  And we have far more security than people whose families couldn’t!

#4  Use your IRAs.”  Because tapping into your retirement savings to buy a house is a good idea for anybody who doesn’t have a large income flow that can make up the difference later.  (It isn’t.)

“#6. Get help from your boss. If you are a valued employee, you might be able to ask for a raise or an advance on your bonus or paycheck…Feel free to play the ‘we’re having a baby!’ card if you work for a family-friendly company.”  As one of the commenters pointed out, this only works when you are a WHITE GUY.  @$@$# @%@#$@#$ @$@#$@# $%^$^$.

Another example of how the rules are different for one segment of society (upper middle class white men with wealthy parents) than for the rest of us.  @$@# you, GRS.

What are other examples of one set of rules for the privileged and another for everyone else?

77 Responses to “Privileged people can give and take bad financial advice”

  1. Holly@ClubThrifty Says:

    The part about borrowing money from your parents reminded me how Mitt Romney suggested that college students and anyone who wants to start their own business should just borrow money from mom and dad. As if everyone’s parents just have tens of thousands of dollars laying around! Poor Mitt.

    “Get help from your boss” is in the same sort of vein. The vast majority of people don’t have jobs where they can negotiate bonuses or pay advances, let alone be in the position to demand it. And yes, it helps to be a guy. My old employers made it painfully clear that me being on maternity leave was a huge burden for them, both financially and logistically. I was in no position to bargain for anything.

    • Leah Says:

      While I could have had maternity leave, the principals at my school thanked me for having a baby in the summertime. Thankfully, they did work with me to modify beginning of school meetings, and my kid was 8 weeks on the first day of school.

      • nicoleandmaggie Says:

        In our department, when the women were all having babies, we had to have individually negotiated packages in which we did extra service. Now that the guys’ SAHM wives are having babies, they get an automatic course reduction and paid leave. NOT FAIR. (My male colleagues who are benefiting argue this is just a cohort effect, but I bet if it had been the other way around cohort-wise, this isn’t the pattern we would be seeing!)

      • Leah Says:

        Maternity leave here is unpaid :-( Blegh.

        I also wish that I could take a year off when I have a second kid (baby + work is hard to balance). Haven’t fulled explored that option yet but am terrified I’d lose my job. It took me too long to get my job to think about losing it. I’ve considered taking more time off but am unsure if I want that impact on health insurance, retirement, etc.

        I hear people say a lot that women don’t get paid less/treated worse when they have the same amount of experience, but I don’t see how we can propagate the species and still let women work. Now, if both partners could carry the baby, and thus a man chose to be the one taking the bigger impact, then it might be fair to let people make the tough choice of who should make less. But, as a woman, it feels pretty darn unfair to me that I’m the one who bears the much larger burden in this baby raising and working deal.

      • nicoleandmaggie Says:

        “I hear people say a lot that women don’t get paid less/treated worse when they have the same amount of experience”

        Empirically false. Perhaps they mean that starting salaries are about the same controlling for major and occupation. (True, BUT, a smaller % of women actually end up getting jobs in the high-paying occupations given the high-paying major!) While the wage gap gets larger the more experience you’re talking about because tiny differences in wage increases compound to very large differences in wages.

    • nicoleandmaggie Says:

      Ugh, yes to all of the above.

  2. taylorqlee Says:

    “Get help from family” is the worst. I’d add to the list “Just find another job!” as if those only scraping by in their three part-time hustles aren’t trying that, thanks.

    Also, my BF pointed out to me when I got really into churning that it was just another example of the relatively well-off (those with high incomes and good credit) being given bonuses over and above the average consumer.

    • nicoleandmaggie Says:

      I was guilty of “good credit score” advice early on, “Just call up and ask them to waive the fee”… they do that when you spend a ton of money on the card each month and have a great credit rating. Not so much when they’re not as committed to keeping you as a customer.

    • Holly@ClubThrifty Says:

      I agree with you about churning. I almost feel guilty about it. A high income and good credit score makes it easy to get thousands of dollars in free stuff every year with little effort. It doesn’t seem fair, although I’m not sure what the answer is.

      • nicoleandmaggie Says:

        At least with credit scores and credit card use, a person has at least some say. We can’t really go back and get born to different parents, and changing one’s gender is prohibitively expensive for most people.

    • Kellen Says:

      What is churning?

  3. First Gen American Says:

    I think the “pursue your dreams” mantra is another one of those privileged class things. Work for yourself is a close second. It’s damn hard doing that in certain professions without having a support system in place…either a spouse you then divorce once you hit it big, or the bank of mom and dad.

    I do enjoy my job but it took a long time to get to this point and pursuing a profession that could support me trumped the “find your passion” thing. Most people need to do the two in parallel before breaking out on their own.

    • nicoleandmaggie Says:

      Absolutely.

      It’s a lot easier to take career risks when your parents (or a spouse) are there to bail you out.

      Even though my sister and I were both raised in extreme frugality with the mantra to “pursue our dreams”… it is unlikely that our dreams just *happened* to be as lucrative as they are. We like making a lot of money, even if it means working for the man, a heck of a lot more than we like constant money stresses.

      • Astra Says:

        It’s a lot easier to take career risks when your parents (or a spouse) are there to bail you out.

        I’m currently in this position. When I’m inclined to bitch and moan about my uncertain job prospects, I remind myself that I am pretty lucky to be able to pursue the position I want rather than the one that is needed to pay the bills.

      • nicoleandmaggie Says:

        We’ve seen that comparing DH (who has me!) to his brother (who has a SAHW and kids to support… and car payments… ). DH has had the luxury of finding a job he wants rather than a job he needs.

    • chacha1 Says:

      I don’t know a single “pursue your dreams” or “work for yourself” person who was not initially, or is not still, at least partially supported by a wage-earning spouse. At the very least, the wage-earning spouse is the one who gets the health insurance and covers the dreamer, meaning consequently the wage-earning spouse becomes tied to the job out of fear of losing coverage (not so much anymore, but as we all know the ACA is both new and under constant attack).

      • lessisenough Says:

        I’m going to disagree on this.

        I think it would be hard to work for yourself without a spouse or some other form of external support (e.g., parents, trust fund) if you have dependents, but if you have only yourself to support, I think you can do the Your Money or Your Life thing and have that work.

        You need to have a stable and reasonably well-paid (but not necessarily high-income) job for enough time that you can live below your means and build up a cushion of savings. You also need to find something you can do that people will pay you for, so that when you quit your job, you can still make enough to live on. And you need to plan for a while and make choices that will facilitate this process, in terms of living in a low-cost area, not developing expensive hobbies, etc.

        Basically the key to working for yourself without external support is to be able to live on an amount that can be generated without causing a huge amount of stress. If you can live on $20,000 a year and have marketable skills that pay $50 (or more) an hour, the economics of that are totally workable. You can get away with making less if you spend less. If you can live on $15,000 a year, you can make $10 an hour and have that be fine.

        And in terms of GRS, I used to read it all the time, now I usually ignore it but ocassionaly hate-read it. JD’s site too. Thanks for this post.

  4. delagar Says:

    “An advance on your bonus.” Oh good Lord.

    • nicoleandmaggie Says:

      inorite?

      If you’re in that kind of situation, just save up the #@$#ing 20% downpayment the old-fashioned way. If it takes a lot of time, then you’re doing something wrong (like buying too much house).

      • oilandgarlic Says:

        The bonus one had me laughing and wincing. There is no way a woman can play the ‘having a baby’ card. I also read that men are generally more successful at getting raises than women. I don’t remember the reasoning but I believe that women are often perceived negatively when being assertive.

      • nicoleandmaggie Says:

        Yes, women are penalized for acting like men. But at the same time, they’re blamed for not acting like men! That’s the patriarchy at work.

  5. Mrs PoP Says:

    Our great deal on a new solar system is really only available to those with access to the money to install it up front at full price anyhow, no matter how awesome the rebates are. So “rich people” (which I kindof think we are now) are those that benefit and get to save on electricity costs. =/

    On the plus side, FPL does also give $ to habitat homes so the new ones are all being built to have solar water heating, which will reduce their costs for many years, so that’s a plus.

    • nicoleandmaggie Says:

      Great point!

      Not only that– but those rebates are generally available in blue states! Though I guess living in a red state is a choice for people like us, so I shouldn’t complain too much.

    • Rosa Says:

      my state just approved a “solar garden” initiative last year, which gives people the option of buying shares in solar projects and getting the electric cost savings back over a long time (25 years). That opens it up a LOT to people with much less capital to invest – though then the rewards are smaller too. Still, a lot of companies, landowners, and institutions like churches are building them & selling shares to neighbors, coop members, and congregants – one church in our neighborhood is in process right now.

      http://cleantechies.com/2014/04/22/community-solar-gardens-sprouting-minnesota/

  6. Leigh Says:

    Don’t even get me started on the different ways that men get promoted than women do. It’s depressing hearing the stories of female friends who haven’t quite gotten their first promotion. Especially considering that my male friends are starting to get the second one with the same amount of work experience. I really miss my first manager who got me that first promotion on an aggressive time frame (under 12 months from hire).

    The “rich people” can afford to put a down payment on a house and buy when buying is cheaper than renting, but people without the money have to keep paying the exorbitant rents. Or things like buying an unlocked phone and then paying a lower monthly bill – you have to have money to do that.

  7. scooze Says:

    Seriously, it’s just lazy writing. And I agree with you as well that Honey Smith knows nothing about finance. She and her husband bought a house they couldn’t afford – and she is delaying her student loan to make basic house payments. Ridiculous – why am I listening to them for advice?

    • nicoleandmaggie Says:

      But Robert Brokamp used to actually write good articles! Now he’s gone all, “sure, stock picking is a *great* idea.” It’s like he’s in it for the money now, whereas before it was either a hobby or a way to advertise motley fool.

      • monsterzero Says:

        Yeah, lately I’ve been happy to see his name up there, then read the article and been, “Uh, nope.” I think part of the GRS problem is that personal finance is not all that complicated to do right, so it gets mined out quickly. If the principles are stated clearly and a couple of examples are given for each one, I’m not even sure they fill a book. So PF books tend to get filled out with repetition, anecdotes, basic arithmetic, and/or malarkey.

      • nicoleandmaggie Says:

        Too bad Brokamp decided to go the malarkey route!

        And there is more advanced stuff (tax optimization, college finance, health insurance, etc.), but it’s harder and probably not applicable to much of the pf readership. I suppose there’s always Forbes. (I’m seriously bummed that when Walter Updegrave retired they took all his stuff off the web– he always had good insight on more advanced topics.) [Update: new Updegrave stuff!]

    • nicoleandmaggie Says:

      OIC what you mean… her annual update doesn’t look too bad (as in, they didn’t get into deeper debt and they paid off their cc) until you realize she’s added $214,000 in debt from that 225K house she bought this year. That’s not even 5% down…

      • chacha1 Says:

        We put 20% ($7500) down on the $37,500 list price of our 2.25 acres. It will be paid off in full before we even start saving money for the actual building materials, and we will have 100% of the money to build the house in hand before we break ground. This will mean that we have to live in horrible L.A. a few years longer than we’d like, but also that once we move out of L.A. (aka “retire”) our living expenses are projected to be well under $1000/mo. I can’t even imagine how someone alleges they are trying to achieve “financial independence” with multiples of 100K in mortgage debt. It’s mendacious, at best.

        I’ve seen that the federally-propped mortgage programs are starting to promote 3% down loans again. Can’t believe how stupid we collectively are (American society).

    • nicoleandmaggie Says:

      And now Kristen Wong is leaving. :(

  8. SP Says:

    Yeah, don’t forget to ask for an advance on your inheritance!!!!

    I mean, really? Anyone who has that as an option (that they are willing to exercise) doesn’t really need to be reading an article about how to get 20% for the house you “suddenly” “need” due to a baby not fitting into your apartment. Wow.

    Privilege lets you take more risk (without it actually being as risky), and that can really pay off.

  9. Debbie M Says:

    My personal favorite is the advice to max out your retirement vehicles. That’s tens of thousands of dollars! Every single year! Also, saving 28+% in taxes on that money. Way less than half the US population could do this.

    It’s also a privilege to not have food allergies; this gives you a lot more choices. Heck, all kinds of good health are a nice privilege–some people really can’t bicycle everywhere, for example.

    It’s a privilege to be independent, too. In some cultures, you better stay in your own town and be helping out all the relatives once they’ve given you loans to go to college, etc. Or sometimes you’re here to send money back to relatives in the homeland. Or sometimes your parents are sick and you need to be making money rather than going to college. Or you could be caught up in a gang or mafia or other scary/abusive situation.

    And there’s the whole driving-while-black phenomenon. My brother had a more minor version of that problem that involved walking through rich neighborhoods with long hair. (Anyone without a car, especially with long hair, is suspect.) He also had a problem with growing up male while short. I never had to worry about getting beat up like he did.

    Alright, this is getting too depressing.

    • Holly@ClubThrifty Says:

      Re: Driving While Black
      My old town is about 99% white. My parents moved there because that is where my dad ended up getting his permanent job. Once I started driving, I noticed that around 50% of people who were pulled over were black. In fact, the town was so white that the only time I really saw non-white people was when I happened to notice someone was pulled over.

      It was glaringly obvious to me that the police felt that any black person driving through was suspicious. I’m not trying to act as if none of them *ever* committed a traffic violation…but come on. That was 10-15 years ago. Hopefully things are different now.

  10. Leigh Says:

    Maternity leave also seems to still be largely for the privileged since it’s mostly unpaid. As is both people working when daycare runs $2k/month per kid – I know people who have had kids young and their partners don’t work because they can’t afford to save for retirement and pay for daycare. My former company would not pay you your stock vests while you were on maternity leave since you were technically paid by the insurance company and not them. I know this is a privilege because I know people who didn’t like how short the maternity leave was, so they just quit their jobs and “made their own maternity leave” since their spouse had a good job.

  11. Comradde PhysioProffe Says:

    What’s the “churning” you’re talking about?

  12. femmefrugality Says:

    Erm, wow. We’re still renting and even share a room with one of our kids. Because we don’t have the down payment saved up, and Mommy and Daddy can’t just lend us a hand. Even if they could, I don’t know that I’d like doing it. I like knowing that everything I/we have is something I/we have worked for. That self-righteousness is probably born out of the necessity of having to do everything myself/ourselves, if I were honest with myself.

    But at least it’s not completely removed from a majority of people’s reality.

  13. Susan Says:

    Buy in bulk, only pay cash for cars, stay home when you’re sick.

    • nicoleandmaggie Says:

      Definitely. Buying in bulk only works when you have the cash and the *space* and the ability to keep things from being destroyed (or not getting in major difficulties if you say, get a moth infestation or your electricity goes out). Cash for cars is a great idea, because you should never finance a depreciating asset, but when you need a car to get to work, *you* are the appreciating asset. And yes on the staying home when sick… works best if you’re not going to get fired for doing so.

  14. Leah Says:

    A (tall, black, male) friend pointed out that leaving the store with purchases in a canvas bag is a privilege thing. No one assumes the smiling white girl is shoplifting groceries after leaving the register.

    • Kellen Says:

      Which is extra sad because I remember learning that white females are extra-likely to shoplift…

    • Katherine Says:

      Yes. My local grocery store (which is a chain that serves mostly Hispanic customers but our particular one also has a lot of Black and Arab customers) recently put a sign up at the door saying that all outside bags have to be left at the customer service desk. Yesterday when we went grocery shopping there was a security guard standing at the door walking people walk in, but my husband and I have never been asked not to bring in our huge bag of reuseable bags. I feel kind of guilty about it.

  15. newemcee Says:

    The same privilege goes for non-money things. I’ve had to hunt very hard for realistic time management advice for work that does not hinge on delegating tasks, choosing not to attend meetings, or being unavailable for a portion of the day (e.g., “don’t check email”). Those might be good strategies for management, but NOT for minions like me.

    • nicoleandmaggie Says:

      ABSOLUTELY. That is an excellent point. Support staff are the ones being delegated to, taking notes at those meetings, and are constantly on-call.

      Where did you find good time management advice?

      • Liz Says:

        I didn’t – I had to make it up. :( I read things like Laura Vanderkam, Gretchen Rubin, Get Things Done, Noah Charney’s series on how writers write, and looked up individual needs from various places like Psychology Today, and adjusted like crazy. What I’ve found works best, all with the caveat “to the extent possible in your given workplace and with your given managers”…
        —Mix things up. If your energy is flagging in the middle of a task or you’re spending too much time on one part, walk away from it for a while. Do something else, change the perspective (go from small details to big picture, e.g.), or start again at the beginning to gain momentum.
        —Keep a time diary for a little while to get a sense of how long different tasks do take. This will both help in figuring out if you’re taking too long, and in figuring out if you’re not being given enough time. (What you can do with the second realization varies considerably.)
        —Enlist a trusted peer to talk at, because sometimes you aren’t going to process something quickly enough until you have to explain it. Bonus: they might have advice to help you troubleshoot.
        —Take your breaks seriously, or at the very least take a good lunch away from your desk and work. The Pomodoro method’s greatest benefit is the institutionalization of stepping away from the computer roughly twice an hour – stretch breaks are the modern smoke breaks.
        —Communicate with your superiors if you think you won’t be able to finish on time, but don’t complain. Use your time-logging knowledge to explain the issue, and offer solutions to how you can prioritize the tasks assigned as a way to get the ball rolling. Lead with data, not emotions.

      • nicoleandmaggie Says:

        You should write an e-book! Wandering Scientist (see blogroll) is currently doing publishing if you’re interested.

      • Liz Says:

        Ha, I’d never thought of that… I’ll look into that. Thanks for the encouragement. :)

      • nicoleandmaggie Says:

        “Time Management For the Rest of Us”

  16. Ana Says:

    Wow, that “advice” is just…disappointing to say the least. IMO tips #1-5 should explain why you do not need to buy a house you cannot afford just because you are having a baby. I have my own rants about the PF world but that advice you quoted goes even above and beyond the privilege of thinking its a good idea to buy high deductible health insurance for your family “because by biking everywhere and eating paleo you will all stay healthy”. Do employers even give MEN bonuses anymore for “having a baby on the way”, the only time I ever saw such a thing was on Mad Men. And, yes, most people I know take pride in saving for and paying for things on their own even if their parents could & would help. Who assumes they are getting an inheritance? I certainly don’t, and I would never presume to ask for it early even if I thought I was! Who knows what expenses could come up in the later years of life (actually I do know, and they can be exorbitant…)
    Other than the health insurance one I noted above, the other frequently trotted out gems that annoy me include the one about buying food in bulk—one word: mice. We don’t buy THAT much bulk because we have limited storage, but ended up throwing tons of stuff out of our pantry this fall because even thick plastic bags (10 lb bag of rice) had been gnawed through. If you live in an apartment, or non-detached housing (our situation) no matter how clean YOU are, you can get pests. And I always get rage-y about the “follow your passion” BS. Quitting your job and “finding yourself” is not feasible or advisable unless someone else is supporting you! I am all for hunting around to find a job you like, but throwing away a job to go bake cupcakes may only work out 0.1% of the time. Of course, its that 0.1% that is writing the blogs and encouraging you to follow your own cupcake dreams, so there is a bias there…
    I was actually never taught to “follow my dreams”. My parents were very emphatic about me & my sister choosing a stable field that would allow us to support ourselves (& future kids) should the need arise. We chose very different fields, as it turned out, but we are both doing well financially.
    finally, I can’t reply to the threat but Liz’s advice up there is spot-on! I especially love the idea of using your time-tracking to notify superiors about the unfeasible timelines. That is such great advice—lead with data—“I’ve found it takes xyz hours to complete task A properly”.

    • nicoleandmaggie Says:

      Empirically, yes, men’s income goes up when they have babies. But it isn’t clear if it’s going up because they have babies or because the wife starts taking over a lot more of the home care (especially if she cuts back her work) or it’s possible they start taking work more seriously because they have someone depending on their income.

      (Women’s real income, of course, goes down after babies, no matter what subgroup you look at.)

      • becca Says:

        Women’s real income goes up after babies, if they are lesbians. Moreso if they are the “primary wage earner”. I suspect that if you had enough lesbians, you could figure out the penalty from just carrying the baby.

        I also suspect that if you had enough lesbians, the world would be much better off, but that is another rant.

      • nicoleandmaggie Says:

        Huh. I wonder if they’re using the imputed lesbian household stuff from the census (where they predict if a couple is lesbian, but they don’t really know) or if they’re using another dataset (and if so, what– most datasets that have income and children don’t have sexual orientation).

  17. rented life Says:

    I totally had husband use the baby card when he was up for a raise because I knew he had a better chance at having it work for him and all our money goes into one account and is shared. (Plus, in truth, he did earn that raise and they were trying to short change him because the company…sucks when it comes to that stuff and that’s about as nice as I can be about it. They offer lower wages and say “but you’ll make bonus” and then make bonus impossible to reach. Plus bonus shouldn’t be considered part of your salary, imo.) I had to save for my own maternity leave because my job didn’t offer it and then I was pressured to come back after 2 months even though I clearly wasn’t ready (my body took much longer to heal). THEN after busting my butt for the first few months I was back, working extra hours, etc, I was mommy-tracked to less hours because “well you have a baby.” um. wtf. What’s worse is it was a mother of 3 who is also a child birth educator who mommy-tracked me while favoring a male employee the same age with a new baby. He gets full time hours, benefits, etc. I get nada.

    Other bad advice: just put your home on a credit card. Just buy a home for 5k and live in it and fix it up as you go along because the monthly payment will be cheap. (Where will that money to fix it up come from? Also said home was in high murder/rape area. .So nope.) Just buy this house and then sell in a couple years when kiddo goes to school. I can’t seem to convince the person giving me this advice (all from the same dude) why it’s so bad. He keeps saying “but you’re a college educated woman, can’t you see why this is fiscally smart?” No dude. No I can’t. I really really can’t.

  18. oilandgarlic Says:

    Here was my take on time management for the “rest of us”! I haven’re updated it or read my own words in a while but hopefully there’s some helpful info there. There may be a whiff of privilege in my advice and I know that there are many unfair bosses out there. https://oilandgarlic.wordpress.com/2012/08/01/168-hours-working-it/

  19. Rosa Says:

    do what you love, take risks, the money will follow!

    I hate that one so much. Especially because I spend so much time trying to get people I know to understand that the risk you should take is with loan money, borrowed in the name of your incorporated business, not your own personal credit card/rent money. Risk is easy if you’re gambling with stuff you don’t actually need to live on.

  20. mh Says:

    I would like to challenge the conventional wisdom that buying a house with little or no money down is risky for the buyer. Statistically speaking there is an added risk for the lender, but I don’t see any risk to the borrower.

    I live in a place where liveable houses start at $380k, and by liveable I mean they have original 1950s/1960s kitchens and bathrooms and no other updates. I bought a 50 year old house with 10-15 year old “updates” for $480k. I put 5% down, and that was a stretch. By the time I could have saved up 20%, or $96,000, “the old fashioned way,” it would be decades. Even if my parents could give me $10k (they can’t) it would be a drop in the bucket.

    Does that mean I can’t afford the house? Well, I can pay all my bills every month and have some left over for savings. I have some cash available for unexpected expenses. Most people would consider that affordable.

    I was able to get an excellent mortgage rate. There is one down side, which is that I have to pay PMI, but that is not a risk to me, it is insurance that I pay *for the lender*. I decided to pay the PMI rather than spend years/decades accumulating enough money to avoid it. I think that’s a valid and practical choice and I don’t see how I am at any greater financial risk than someone who put 20% down on the same house.

    TL;DR I guess what I am trying to express is that 20% down is an arbitrary amount designed for the protection of mortgage lenders, not homeowners. I think this assumption is unexamined by personal finance writers, especially in the context of high cost-of-living areas.

    • nicoleandmaggie Says:

      Huh, you must not have been alive 10 years ago. You really don’t know any people who were trapped when their houses went underwater and they lost their jobs and couldn’t sell the house for what they owed on the mortgage? And then had to go through painfully long short-sale processes or foreclosures?

      I guess if you’re ok with foreclosing at the drop of a hat and live in a place where it’s quick and easy to foreclose and are ok with the resulting hit to your credit rating and either live in a state that doesn’t tax you on the difference or you don’t mind the tax bill, then sure, go ahead.

      Most people, though, would rather not have to foreclose. They have moral qualms. Or don’t want to be unemployable because they have bad credit ratings. Or just don’t want to deal with the hassle and its aftermath.

      The 20% is based on predicted drops in housing value. So you can sell the house and pay off the remaining mortgage even if the value drops. Yes, it is somewhat arbitrary, but it works.

      It also seems to be a good number to show that you can save up and have extra cash to pay for the unexpected additional homeownership costs that crop up, because you’re used to saving.

      And yes, many people do just fine putting less than 20% down, but that’s mainly because they are lucky. These kinds of suggestions are for how to make a risk into a calculated risk so you don’t have to be so lucky all the time in order to come out ahead.

      • lessisenough Says:

        The underwater/short sale/foreclosure issue seems less about how much you put down and more about how stable your life is.

        If are not going to move and you have an affordable, fixed mortgage payment, it seems to me that a drop in housing values does not affect you. It’s only if you need to sell that you are in trouble.

        It may not be a good investment, but it’s still a place to live. No matter how far underwater it is.

      • nicoleandmaggie Says:

        right, but housing values tend to drop during recessions, and recessions and job loss are heavily correlated

        So when you lose your job and need to move, you are in for a world of pain when you can’t sell your house. Did you seriously not know anybody in that situation during the last recession?

        And I think we knew even more people who were trapped in toxic jobs they couldn’t leave because they were underwater on their houses and couldn’t sell. (Recessions also tend to make work environments worse.)

        When your house *isn’t* underwater, you’re not trapped.

        I feel like we just had a post on this as a response to another stupid GRS post. I think if you search for the word “Kasia” you can find it. Here it is: https://nicoleandmaggie.wordpress.com/2014/08/11/why-not-just-live-well-while-in-debt/

      • mh Says:

        Ha – yes, I was very much alive 10 years ago. I recall that in some places, house prices dropped by more than 20%. If I put 20% down, and the next day my house dropped in value by 23% and I lost my job – I’d still lose my house. It’s not a magic number.

      • nicoleandmaggie Says:

        Nothing is 100%. You can only manage risk, not prevent it.

        And presumably, you wouldn’t be in a situation where housing prices drop 20% overnight. Usually you will have made some payments on principal by the time they drop 20%, so you will have more equity at that point. You will be in a much better situation if you put in 20% than if you put in 5%. Especially if you did it the right way and still have an emergency fund you could use to prevent having to go into a short-sale.

      • lessisenough Says:

        Hmm, I’m not sure if this reply is going to go to the right place. Will try anyway.

        I actually don’t personally know anyone who lost their job in the last recession and their house was underwater. I live in an area where housing prices are low — it is actually cheaper to buy than to rent around here, rents are ridiculous and you can buy a house for less than $100,000 — and where houses in general weren’t overvalued, so housing values didn’t drop much. And also there are a variety of job options within a 25-mile radius, which is manageable commuting distance.

        People I know around here who lost their jobs found anouther job around here. Their commute might have gotten worse, but they didn’t have to change houses.

        Maybe the people I know don’t do the kind of jobs that you would need to go somewhere specific to do.

      • nicoleandmaggie Says:

        We know people both in expensive places and in cheap places hit hard by the auto industry recession who were in that situation.

        Absolutely different places in the country have different rent vs. buy calculations, and there are different amounts of risk to take on based on the cost of a house. Still, if you can’t save 20K to buy a 100K house, you may be putting yourself at a risk that you don’t need to put yourself in. (Similarly, if you can’t save $800 down for a 40K house.)

        The thing is that local recessions tend to be correlated– when the auto industry goes down in the Midwest, there’s not enough jobs available in the other local industries anymore both because of the recession and because of everyone with transferable skills leaving the auto industry. The oil parts of the country are predicted to have that kind situation in the near future– a local recession like the ones in the 1980s when those housing markets came crashing down.

      • lessisenough Says:

        When the housing market is the way it is here — with renting expensive and buying cheap — the usual advice starts to feel off. If you have to spend $800-$1000 a month to rent, but could buy and have a mortgage in the $400-$600 range, renting until you save money doesn’t make sense.

        If it’s the way most people think of it being, with the monthly cost for renting cheaper than the monthly cost for buying, then you should at least be able to save the difference between what your current rent is and what your future mortgage payment will be, and get more equity that way.


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